KeyBanc's Bullish Stance Unchanged After Yelp's Q4 Report

Yelp Inc YELP reported fourth quarter results that fell short of what Wall Street expected, but at least one analyst says his bullish thesis is unchanged.

The Analyst

KeyBanc Capital Markets' Brad Erickson maintains an Outperform rating on Yelp's stock with an unchanged $54 price target.

The Thesis

Despite an earnings miss in the fourth quarter, Yelp showed its execution improved in terms of local ad retention, Erickson said a note. The company's in-line EBITDA during the fourth quarter and disappointing guidance for 2018 should signal the company "had extra margin" to hire more aggressively and demonstrates that churn is "under control."

Excluding a $16.5 million incremental loss year-over-year on Nowait, Yelp Reservations and Yelp Wi-Fi, the company's guidance EBITDA guidance would be around $197 million which would be in-line with the Street's estimates. Excluding the $10 million of the Eat24 benefit in the quarter, Yelp's contribution margins would have still improved by 200 basis points year-over-year.

The main takeaway from Yelp's report is that the local ad business remains undervalued, Erickson said. Looking forward to the full year 2018, it would be reasonable to assume that management's guidance is at the very least achievable if not conservative as it implies little Eat24 growth and no material RAQ (Request A Quote) contribution.

Price Action

Shares of Yelp lost more than 7 percent Thursday.

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